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Continuous Time Model Estimation

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Author Info
Carl Chiarella () (School of Finance and Economics, University of Technology, Sydney)
Shenhuai Gao (School of Economics and Political Science, University of Sydney)

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Abstract

This paper introduces an easy to follow method for continuous time model estimation. It serves as an introduction on how to convert a state space model from continuous time to discrete time, how to decompose a hybrid stochastic model into a trend model plus a noise model, how to estimate the trend model by simulation, and how to calculate standard errors from estimation of the noise model. It also discusses the numerical difficulties involved in discrete time models that bring about the unit roots illusion in econometrics.

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File URL: http://www.business.uts.edu.au/finance/research/wpapers/wp137.pdf
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Publisher Info
Paper provided by School of Finance and Economics, University of Technology, Sydney in its series Working Paper Series with number 138.

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Date of creation: 01 Dec 2004
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Handle: RePEc:uts:wpaper:138

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Related research
Keywords: Continuous time model; Estimation; Trend and noise decomposition; Unit roots illusion;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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This page was last updated on 2009-12-2.

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